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CORNERSTONES
of Managerial Accounting, 6e
CHAPTER 1:
INTRODUCTION TO
MANAGERIAL ACCOUNTING
Cornerstones of Managerial
Accounting, 6e
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Meaning of
Managerial Accounting
 Managerial accounting is providing accounting
information for a company’s internal users.
 Is not bound by generally accepted accounting
principles (GAAP).
 Managerial accounting has three broad
objectives:
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The Meaning of
Managerial Accounting
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• To provide information for planning the organization’s
actions.
• To provide information for controlling the organization’s
actions.
• To provide information for making effective decisions.
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Planning
 The detailed formulation of action to achieve a
particular end is the management activity called
planning.
Example
Setting objectives
Improve Quality
Identifying methods to
achieve those objectives
Supplier Evaluation
Program
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Controlling
 The managerial activity of monitoring a plan’s
implementation and taking corrective action as
needed is controlling.
Compare
Actual
Performance
Expected
Performance
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Decision Making
 The process of choosing among competing
alternatives is called decision making.
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Comparison of Financial and
Managerial Accounting
Financial Accounting
Managerial Accounting
Externally focused
Internally focused
Must follow externally imposed rules
No mandatory rules
Objective financial information
Financial and information; subjective
information possible nonfinancial
Historical orientation
Emphasis on the future
Information about the firm as a whole
Internal evaluation and decisions
based on very detailed information
(disaggregated)
More self-contained
Broad, multidisciplinary
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Current Focus of Managerial
Accounting
 The business environment in which companies
operate has changed
 Effective managerial accounting systems provide
information that helps improve companies’
planning, control, and decision-making activities.
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Current Focus of Managerial
Accounting (cont.)
Important uses of managerial accounting:
1. New methods of estimating product and service
cost and profitability
2. Understanding customer orientation
3. Evaluating the business from a cross-functional
perspective
4. Providing information useful in improving total
quality management.
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
New Methods of Costing
Products and Services
 Today’s companies need focused, accurate
information on the cost of products and services
produced.
 Activity-based costing (ABC) is a more detailed
approach to determine the cost of goods and
services.
 ABC improves costing accuracy by emphasizing the
cost of the many activities or tasks that must be done to
produce a product or service.
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New Methods of Costing Products
and Services (cont.)
 Process-value analysis focuses on the way in
which companies create value for customers.
 Find ways to perform necessary activities more
efficiently and eliminate those that do not create
customer value.
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Customer Orientation
 Customer value is a key focus
 Firms can establish a competitive advantage by
creating better customer value for the same or
lower cost than competitors
 Create equivalent value for lower cost than that of
competitors.
 Customer value is the difference between what a
customer receives and what the customer gives
up when buying a product or service.
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Strategic Positioning
 Effective cost information can help increase
customer value.
 Cost Leadership: Provide the same or better value to
customers at a lower cost than competitors.
 Superior products through differentiation: Increase
customer value by providing something to customers
not provided by competitors.
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Value Chain
 Successful pursuit of cost leadership and
strategies
 The value chain is the set of activities required to
design, develop, produce, market, and deliver
products and services, and provide support
services to customers.
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Value Chain
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Cross-Functional Perspective
 In managing the value chain, a managerial
accountant must understand and measure many
functions of the business.
 Contemporary approaches to costing may
include:
 initial design and engineering costs
 manufacturing costs
 costs of distribution
 sales and service.
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Total Quality Management
 Continuous improvement is the continual
search for ways to increase the overall efficiency
and productivity of activities by reducing waste,
increasing quality, and managing costs.
 Fundamental for establishing excellence.
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Total Quality Management (cont.)
 A philosophy of total quality management, in
which manufacturers strive to create an
environment that will enable workers to
manufacture perfect (zero-defect) products.
 Has created a demand for a managerial
accounting system that provides information
about quality.
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Total Quality Management (cont.)
 Companies attempt to increase organizational
value by eliminating wasteful activities that exist
throughout the value chain.
 This has led to a change in accounting, referred
to as lean accounting, which organizes costs
according to the value chain and collects both
financial and nonfinancial information.
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Total Quality Management (cont.)
 A more recent charge of managerial accountants
is to help carry out the company’s enterprise risk
management (ERM) approach.
 ERM is a formal way for managerial accountants
to identify and respond to the most important
threats and business opportunities facing the
organization.
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Time As A Competitive Element
 Time is a crucial element in all phases of the
value chain.
 Firms reduce time to market by compressing
design, implementation, and production cycles.
 Deliver products or services quickly by eliminating
nonvalue-added time, which is time of no value to
the customer (e.g., the time a product spends on
the loading dock).
 Decreasing nonvalue-added time appears to go
hand in hand with increasing quality.
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Efficiency
 Improving efficiency is also a vital concern.
 Both financial and nonfinancial measures of
efficiency are needed.
 Cost is a critical measure of efficiency.
 For these efficiency measures to be of value,
costs must be properly defined, measured, and
assigned
 Production of output must be related to the inputs
required, and the overall financial effect of
productivity changes should be calculated.
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Role of the Managerial
Accountant
 The role of managerial accountants is one of
support.
 Assist those who are responsible for carrying out
an organization’s basic objectives.
 Positions that have direct responsibility for the
basic objectives of an organization are line
positions.
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The Role of the Managerial
Accountant (cont.)
 Positions that are supportive in nature and have
only indirect responsibility for an organization’s
basic objectives are staff positions.
 The controller supervises all accounting
functions and reports directly to the general
manager and chief operating officer.
 In larger companies, the controller is separate
from the treasury department. The treasurer is
responsible for the finance function.
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.